Exercises and Problems XACC/291

Individual Problems

E9-1

The following expenditures relating to plant assets were made by Spaulding Company during the first 2 months of 2011.

1. Paid $5,000of accrued taxes at time plant was acquired.
2. Paid $200 insurance to cover possible accident loss on new factory machinery while the machinery was in transit.
3. Paid $850 sales taxes on new delivery truck.
4. Paid $17,500 for parking lots and driveways on new plant site.
5. Paid $250 to have company name and advertising slogan painted on new delivery truck.
6. Paid $8,000 for installation of new factory machinery.
7. Paid $900 for one-year accident insurance policy on new delivery truck.
8. Paid $75 motor vehicle license fee on the new truck.

 

• Explain the application of the cost principle in determining the acquisition cost of plant assets.
• List the numbers of the forgoing transactions and the opposite each indicate the account title to which each expenditure should be debited.

E9-7

Brainiac Company purchased a delivery truck for $30,000 on January 1, 2011. The truck has an expected salvage value of $2,000 and is expected to be driven 100,000 miles over its estimated useful life of 8 years. Actual miles driven were 15,000 in 2011 and 12,000 in 2012.

• Compute depreciation expense for 2011 and 2012 using (1) the straight line method (2) the units of activity method and (3) the double declining balance method.
• Assume that Brainiac uses the straight line method.
• Prepare the journal entry to record 2011 depreciation.
• Show hoe the truck would be reported in the December 31, 2011 balance sheet.

E9-12

The following are selected 2011 transactions of Franco Corporation.

Jan. 1   Purchased a small company and recorded goodwill of $150,000. Its useful life is indefinite.

May 1   Purchased for $90,000 a patent with an estimated useful life of 5 years and a legal life of 20 years.

Prepare necessary adjusted entries at December 31 to record amortization required by the events above.

P9-7B

The intangible assets section of Time Company at December 31, 2011 is presented below.

Patent ($100,000 cost less $10,000 amortization)                              $90,000

Copyright ($60,000 cost less $24,000 amortization)                          $36,000

Total                                                                                                    $126,000

The patent was acquired in January 2011 and has a useful life of 10 years. The copyright was acquired in January 2008 and also has a useful life of 10 years. The following cash transactions may have affected intangible assets during 2012.

Jan. 2 Paid $45,000 legal costs to successfully defend the patent against infringement by another company.

Jan. – June   Developed a new product incurring $230,000 in research and development costs. A Patent was granted for the product on July 1. Its useful life is equal to its legal life.

Sept. 1  Paid $125,000 to an Xgames star to appear in a commercial advertising the company’s products. . The commercials will air in September and October.

Oct. 1 Acquired a copyright for $200,000. The copyright has a useful life of 50 years.

• Prepare journal entries to record the transactions above.
• Prepare journal entries to record the 2012 amortization expense for intangible asset.
• Prepare the intangible assets section of the balance sheet at December 31, 2012.
• Prepare the note to the financials on Time’s intangibles as of December 31, 2012.